FIRST LEASING COMPANY OF INDIA LIMITED
ANNUAL REPORT 2011-2012
A REVIEW OF THE COMPANY'S PERFORMANCE OVER FISCAL 2012:
First Leasing worked against an adverse tide of 13 interest rate
impositions and a decelerating economy (GDP growth is forecast at 5.6 to 6%
against the 8 & 9% growth rates of earlier years). Raising money to fund
asset growth in a cash strapped money market to meet sudden opportunity
growth virtually disappeared. First Leasing's major expense account is
'interest paid' which after the interest rate hikes referred to earlier
escalated to Rs.149.85 Crores from the previous year's Rs.110.34 Crores.
First Leasing despite these adverse developments managed to increase total
revenues to Rs. 213.35 Crores from the preceding year's Rs. 179.93 Crores.
This adverse impact of the high interest bill was subdued by careful
management of Operating Expenses which were brought down to Rs. 9.32 Crores
from Rs.14.45 Crores a drop of 36%, almost equalizing 'Profits before
exceptional expense and taxes', with last years number.
What proved impossible to replicate was the preceding year's windfall
capital gain of Rs. 53.42 Crores from the sale of CARE shares. However this
drop was partially offset by the corresponding fall in taxes to Rs. 17.22
Crores from Rs. 31.77 Crores.
First Leasing recognizes that funding will continue to be a serious problem
in the coming year as inflation continues high in excess of globally
acceptable safe limits. The Company succeeded in negotiating the highest
bank limit increase in any fiscal year of Rs. 175 Crores to grow our
With the Equity markets lifeless we were constrained to find longer term
money in the form of subordinated debt for periods of 5 years and 3 months
and 7 years. Fortunately Reserve Bank of India recognizes sub debt as Tier
II Capital which will strengthen our funding base.
(Rs. in Lacs) (Rs. in Lacs)
APPROPRIATIONS 2012 2011
Profit for the year 3,161.83 7,086.54
Surplus brought forward from previous year 12,798.95 8,189.93
Statutory Reserve (633.00) (1,415.00)
Total 15,327.78 13,861.47
From which the following
appropriations are made:-
General Reserve 238.00 531.00
Dividend 410.23 455.81
Corporate Tax on dividend 66.55 75.71
Surplus in Profit and Loss Account 14,613.00 12,798.95
Total 15,327.78 13,861.47
REGULATION OF NBFCs:
The Company has complied with applicable regulations as per Reserve Bank of
India Directions to NBFCs. Capital Adequacy Ratio stood at 19.24% (19.38%)
as at 31st March 2012 as against the minimum requirement of 15% stipulated
by RBI. Net Non Performing Assets as at 31st March 2012 stood at 0.12%
The Board of Directors have recommended a Dividend of Rs.1.80 per share of
Rs.10 each on the Equity Shares (18%) free of tax for the year ended 31st
The outstanding amount in Public Deposits Account as on 31st March 2012
stood at Rs. 4,824.91 Lacs together with the accrued interest of Rs. 285.75
The Company has since repaid its entire Public Deposits outstanding as on
7th August 2012 together with the accrued interest on that date to its
Deposit holders and as such the amount due to Public towards Public
Deposits is Nil.
Mr. A C Muthiah, Director of the Company, retires by rotation at this
Annual General Meeting and being eligible offer himself for re-election.
Mr. V Selvaraj was appointed as Additional Director with effect from 14th
August 2012. He holds his Office upto the date of ensuing Annual General
Meeting. In accordance with the provisions of section 257 of the Companies
Act, 1956 the Company received a notice in writing from a member proposing
his appointment as Director of the Company together with requisite deposit.
The resolution seeking the approval of the members for appointment of Mr. V
Selvaraj as Director of the Company has been incorporated in the notice of
the ensuing Annual General Meeting.
Mr. N Ramakrishnan was appointed as Additional Director with effect from
14th August 2012. He holds his Office upto the date of ensuing Annual
General Meeting. In accordance with the provisions of section 257 of the
Companies Act, 1956 the Company received a notice in writing from a member
proposing his appointment as Director of the Company together with
requisite deposit. The resolution seeking the approval of the members for
appointment of Mr. N Ramakrishnan as Director of the Company has been
incorporated in the notice of the ensuing Annual General Meeting.
Maharaj Jai Singh, Mr. A Satish Kumar and Mr. M B Sridharan resigned from
the Directorship of the Company with effect from 25th January 2012, 8th
August 2012 and 14th August 2012 respectively. The Board wishes to place on
record its appreciation of the valuable services and guidance rendered by
Maharaj Jai Singh, Mr. A Satish Kumar and Mr. M B Sridharan during their
association with the Company.
MANAGING DIRECTOR'S COMMISSION:
The Board noted that the Managing Director of the Company expressed his
intention to take a significantly reduced commission of Rs.15,54,952/- for
the year ended 31st March 2012 which is equivalent to a normal bonus given
to a staff member of the Company instead of his eligible Commission of
Rs.1,00,83,723/- i.e. 2% on the net profits computed under section 349/199
of the Companies Act, 1956, in view of adverse economic conditions
prevailing in the financial industry.
The Statutory Auditors M/s. Sarathy & Balu, Chartered Accountants, Chennai
(FRN- 03621S), retire at the ensuing Annual General Meeting and are
eligible for re-appointment. Your Directors recommend their re-appointment
to hold the office as statutory auditors till the conclusion of the next
Annual General Meeting. The Auditors have confirmed that the re-
appointment, if made, will be within the limits prescribed under Section
224(1B) of the Companies Act, 1956.
The firm has successfully undergone the Peer Review Process by Peer Review
Board (PRB) of the Institute of Chartered Accountants of India, New Delhi.
The firm holds a valid certificate issued by the Peer Review Board of the
The Ministry of Corporate Affairs vide its order No. 52/26/CAB/2010 dated
2nd May 2011 read with its circular 12/2012 dated 4th June 2012 made it
mandatory to appoint Cost Auditor in respect of certain industries. The
order covers industries engaged in Power Generation through Wind Mill
Accordingly, the Board of Directors of the Company have approved the
appointment of Mr. S Sundar of M/s. S Sundar & Associates, Cost Accountant
in practice as Cost Auditor to conduct the audit of the cost records of the
Company in respect of its Wind Mill Operations for the financial year ended
31st March 2012 and 31st March 2013, subject to the approval of Central
A report on Corporate Governance forms part of this report and a
certificate from the Auditors of your Company regarding compliance of
conditions of the Corporate Governance is attached to this report. A
Management Discussion and Analysis Report also forms part of this report.
UNCLAIMED SHARE CERTIFICATES:
In term of clause 5A II of the Listing Agreement, the Company has sent
three reminders to the shareholders whose share certificates remains
unclaimed with the Company. The Company will transfer the shares comprised
in the share certificates into one folio in the name of Unclaimed Suspense
Account (Demat Account). The Company is in the process of opening Unclaimed
Suspense Account and further disclosures as stated in the Listing Agreement
will be made in due course.
* 'CARE A1+ ' (A ONE PLUS) for Commercial Papers
* 'CARE AA' (DOUBLE A) for Long Term Debentures
* 'CARE AA+ (FD)' (DOUBLE A PLUS) for Fixed Deposits
* 'CARE 'AA' (DOUBLE A) Long Term Bank facilities
* 'CARE 'AA -' (DOUBLE A MINUS) for Un-Secured Subordinated debt
* 'BWR AA' (BWR DOUBLE A) for Un-Secured Subordinated debt
PROVISION ON STANDARD ASSETS:
As per Reserve Bank of India Directive, the Company has provided 0.25% on
Standard Assets aggregating Rs. 42.44 Lacs (previous year Rs. 385.32 Lacs)
in the accounts for the year ended 31st March 2012.
INFORMATION AS PER COMPANIES (DISCLOSURE OF PARTICULARS IN THE REPORT OF
BOARD OF DIRECTORS) RULES 1988:
During the year under review, there is no information required to be stated
relating to Energy Conservation and Technology absorption.
Foreign currency expenditure amounting to Rs.1,080.02 Lacs was incurred
during the year under review relating to hedging costs for FCNR borrowings
from our bankers because a lower interest rate was available. The Company
does not have any Foreign Exchange earnings.
PARTICULARS AS PER THE COMPANIES (PARTICULARS OF EMPLOYEES) RULES, 1975:
Particulars of Employees in terms of requirement under Section 217(2A) of
the Companies Act, 1956 are set out in the Annexure forming part of this
DIRECTORS' RESPONSIBILITY STATEMENT:
Pursuant to the section 217(2AA) of the Companies Act, 1956 the Board of
1. That in the preparation of the annual accounts, the applicable
accounting standards had been followed along with proper explanation
relating to material departures.
2. That the directors had selected such accounting policies and applied
them consistently and made judgments and estimates that are reasonable and
prudent so as to give a true and fair view of the state of affairs of the
Company at the end of the financial year and of the profit of the Company
for that period.
3. That the directors had taken proper and sufficient care for the
maintenance of adequate accounting records in accordance with the
provisions of Companies Act, 1956 for safeguarding the assets of the
Company and for preventing and detecting fraud and other irregularities.
4. That the directors had prepared the annual accounts on a going concern
The Directors wish to thank the Bankers, Financial Institutions, Customers
and Employees for their assistance and support extended to the Company
during the year under review.
For and on behalf of the Board
Place: Chennai A C MUTHIAH
Date : 14th August 2012 Chairman
MANAGEMENT DISCUSSION AND ANALYSIS
INDUSTRY STRUCTURE AND DEVELOPMENTS:
First Leasing was incorporated 38 years back as the First Leasing Company
in India. Today, Leasing is an essential part of the financial systems and
provides an important source of funds for every sector of the Indian
Economy, right from Consumer Finance related transactions to equipment for
the Pharmaceutical, Automobile, Softwares and Telecommunication Industries
etc. Leasing is used as an additional source of capital for financing the
capital assets of industries which enables them to reduce the earlier
dependence on working capital resources.
Leasing allows entrepreneurs to upgrade assets more frequently ensuring
they have the latest equipments without having to make further capital
outlays. Leasing offers the flexibility of repayment period being matched
to the useful life of the assets. Leasing provided a route for accessing
finance to business which promotes domestic production, economic growth and
Globalization of the Indian economy brought several Non-Banking Financial
Companies into the market resulting in more intensive competition. The
Reserve Bank of India has taken several steps including reducing risks
weightage and provisioning norms for Loans given to Non-Banking Financial
Companies so as to help them survive in the current liquidity crises.
Non-Banking Financial Companies play an important role in the financial
sectors due to better consumer service, continuous reduction of non
performing assets (NPA) and with their focused operations relating to their
products and customers.
First Leasing, with its 38 years of successful experience, responded to
these market development by adopting safe credit policies and procedures
and prudent asset and liability management instead of attempting to force
OPPORTUNITIES & THREATS:
The Leasing Industry holds immense potential. The growing Indian Economy
will continue to provide several growth opportunities for the financial
services industries in India. A positive development in the industry
(adding to the conviction that the Leasing Industry has good future
prospects) is that Indian Industry is shedding its conservative attitude of
preference for asset ownership and increasingly moving towards leased
There has been huge demand for Lease financing in respect of consumer goods
and infrastructure sectors as compared to other markets. Leasing may be a
useful source of financing, since access to capital markets or bank loans
is difficult for small and medium size companies with unproven track
First Leasing Company of India Limited with its 38 year track record has
been able to run its business operations in a profitable manner and
generate adequate funds to meet its financial obligations to banks and
other credit grantors.
Non-Banking financial Companies continue to face competition from local and
multinational players in the market. The Leasing Industry grew despite
several constraints. These problems relate to the inadequacy of funding ,
insufficient tax benefits, multiplicity of taxes and the absence of
specific legislation governing lease transactions. Frequent changes in law
affect leasing operations substantially.
Interest rate volatility affects operating costs, expenses and
profitability of the Leasing Industry. The indiscriminate entry of new
companies into the industry evidenced a need for regulation and the Reserve
Bank of India imposed certain restrictions. To grow the Leasing Industry,
it is necessary for the Government to initiate tax incentives.
Large professionally managed independent leasing companies demonstrated an
ability to succeed and grow. The leasing market has not developed
commensurately with the growth of leasing companies. This has led to
competition and as a result several leasing companies, lacking in
profession expertise, were forced to exit.
SEGMENT WISE PERFORMANCE:
The Company is engaged in financial activities viz. providing lease
assistance, Hire Purchase Financing and Loans. The Company is also engaged
in Wind Power Generation. However, the requirement to furnish segment wise
performance is not applicable.
Capital Expenditure in India is at a rock bottom low as is inevitable with
responsible financial papers suggesting a GDP growth in the sub 6% region.
This dismal development is witnessed by the fact that companies such as
Reliance Industries Limited (RIL), Coal India Limited (CIL) and Infosys are
sitting on a cash pile of Rs.9 Crores and refusing to invest.
Given the economic crisis in Euroland and the 'financial cliff' facing the
US with the developed Western World barely achieving growth of 1% we could
be encouraged to believe that foreign investments will find its way to
India given the huge demographic demand potential.
Unfortunately some of the tax provisions in the budget for 2012 seriously
discouraged foreign investment. A ray of sunlight emerges with Government
permitting interest rates of 8% plus for Non Resident deposits meaningful
funds have come into India from Non Resident Indians. Hopefully this would
encourage banks to provide more funding.
The recent break down of the power grid in north India does not encourage
investors nor does the 'less than best monsoon' (coupled with the
continuing inflation) as cashflows to the Agricultural Sector will most
likely fall and lead to a depressed aggregate consumer demand for
manufactured products, once again hurting capital expenditure prospects.
RISKS AND CONCERNS:
The Company through its risk management systems clearly identified the
external and internal risks affecting its business operations. External
risk may arise because of fluctuations in interest rates in the financial
market, frequent changes in government policies especially in tax matters
and periodically from economic downturns which affect the cash flow
capacity of customers to remit rentals etc.
EXTERNAL RISK IS ADDRESSED AS FOLLOWS:
* An Effective Credit appraisal system
* A carefully defined credit policy that focuses on the most credit worthy
* Flexible structuring to meet customer needs
* Sovereign risk/Central Government related transactions
* Continuing and close communication with legal counsel
Internal risk is monitored by adopting effective internal control systems
The Company has put in place a Risk Management Committee as per the
Guidelines on Corporate Governance issued by the Reserve Bank of India to
monitor Risk Management Systems so as to ensure that the risk parameters
are within the defined limits.
INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:
The Company has put it place adequate internal controlling system
commensurate with the size of the company and nature of its business. The
Internal Control Systems and the procedures have been repeatedly fine tuned
and improved upon in line with business changes. The Company has also
established Standard Operating Procedures for all its functional areas. The
internal controls and audit systems are being reviewed periodically by the
management and Audit Committee and steps are taken as part of continuous
* The Company's total income from operations has increased from Rs. 179.93
Crores to Rs. 213.35 Crores representing an increase of 18.57% over the
* Interest Expenses increased by Rs. 39.51 Crores due to increase in
* The operating expenses decreased from Rs. 17.54 Crores to Rs. 12.64
* First Leasing's Cash Profits before tax decreased from Rs. 105.48 Crores
to Rs. 50.86 Crores over the preceding year.
* The Company registered a net profit of Rs. 31.62 Crores as against
Rs.70.87 Crores (which included a profit on sale of investment amounting to
Rs. 42.77 Crores in the shares of Credit Analysis and Research Limited by
the Company) in the corresponding period in the previous year after tax and
The Company is managed by a professional team under the guidance of the
Managing Director. Frequent meetings are arranged to upgrade the knowledge
of the employees and to strengthen their managerial capabilities.
There are no material financial and commercial transactions in which the
management have personal interest that may represent a potential conflict